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The acronym MPBF stands for Maximum Permissible Banking Finance. It is an organization where corporate is advised not to gain too much of a current stock or asset. Instead it is suggested that they go for receivable levels and inventories using two different methods to fund corporate's capital needs.
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What is modified MPBF system in Indian context?
MPBF stands for Maximum Permissible Banking Finance in Indian Banking Sector. MPBF guidelines were suggested in Tandon commettee which were being followed by Indian Banks with lot of stringency. Corporates faced lot of problem in getting Finance from banks on account of stringency of the norms and they had to resort to other sources of finance at a higher cost these norms were dissolved. Consequently SBI, India's largest bank came out with its own guidelines which were on the similar lines but with relaxed norms which are being followed by all banks with slight personalisation and referred to as modified MPBF System in Indian context.
How the mpbf be calculated?
.75(CA-CL) (.75 of CA)-CL .75(CA-CCA)-CL
What is the role of tandon committee on working capital?
•RBI stipulated that the working capital needs of all borrowers enjoying fund based credit facilities of more than Rs. 10 lacs should be appraised (calculated) under this method.••Concept of working capital finance is introduced by the committee. WCG should be met partly from the borrower's long term sources (margin money) and the balance by bank finance•• Concept of MPBF was introduced . This committee has given three different methods for calculation of MPBF•Core current assets defined in third method is the minimum stock levels which a company carries through all the year••In 1997 RBI withdrew the instructions regarding following of Tandon committee recommendations to assess the MPBF and permitted all banks to follow their own methods with in prudential guidelines .MPBF•Tandoncommittee suggested the following threealternatives for calculating MPBF•First Method:MPBF = 0.75 (CA - other current liabilities)This method ensures the minimum current ratio of 1.17:1•Second Method:MPBF = (0.75 X CA) - other CLThis method ensures the minimum current ratio of 1.33:1•Third Method:MPBF = 0.75(CA-CCA) - CLCCA means core current asset= CURRENT ASSET -OTHER SHORT TERM LIABILITIES
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